Caltor Company produces two types of space heaters (regular and super). Both pass through two producing departments: fabrication and assembly. It also has a materials handling department that is responsible for moving materials and goods to and between departments. Budgeted data for the three departments are as follows:

In the fabrication department, the regular model requires one hour of direct labor and the super model, two hours. In the assembly department, the regular model requires 0.5 hour of direct labor and the super model, one hour. Expected production: regular model, 8,000 units; super model, 8,000 units.
Immediately after preparing the budgeted data, a consultant suggests that two manufacturing cells be created: one for the manufacture of the regular model and the other for the manufacture of the super model. Raw materials would be delivered to each cell, and goods would be shipped immediately to customers upon completion. The total direct overhead costs estimated for each cell would be \($76,000\) for the regular cell and \($240,000\) for the super cell.
Required:
1. Allocate the materials handling costs to each department, and compute the overhead cost per unit for each heater. (Overhead rates use direct labor hours.)
2. Compute the overhead cost per unit if manufacturing cells are created. Which unit overhead cost do you think is more accurate—the one computed with a departmental structure, or the one computed using a cell structure? Explain.
3. Note that the total overhead costs for the cell structure are lower. Explain why.

Transcribed Image Text:

Overhead Number of moves Direct labor hours Materials Handling Fabrication Assembly $160,000 $240,000 $68,000 30,000 10,000 24,000 12,000